Abstract
The world is going through a transition where we are witnessing increased protectionism. Many reports are pointing towards troubled waters in developed countries due to economic slowdown and anti-trade sentiments leading to uncertainty. Asian countries, on the other hand, are experiencing mixed fortunes. China the global powerhouse is experiencing slowdown and excess capacities, whereas India is being portrayed as a bright spot with a 7 per cent plus expected economic growth. The questions which are thus important at this juncture are:
Can trade play a similar role in development of Asia as it did during the post-World War days until the global financial crisis (with occasional cyclical problems)?
Will investment of foreign origin from developed countries outside and within Asia to low-cost destinations still continue?
What are the likely impacts on development of Asian economies due to this changed circumstance?
Given the economic conditions in most of the Asian countries which still houses a substantial portion of the world poor these questions assumes a lot of importance. The book is thus topical and addresses burning issues in trade and development in the Asian region. The selected chapters from a greater number of submissions show editorial proficiency.
At the outset mention must be made about the excellent opening chapter by the editors. The chapter gives an apt introduction to the varied topics covered by unearthing the commonalities and links between the contributions. This is supplemented by analysis of trends of major economic variables and studies related to the issues covered. The four sections under which the contributions have been classified are empirical issues in trade, foreign direct investment, trade and environment and institutions and trade.
In the first section topics as varied as intra-industry trade trends, production network patterns, Iran–India trade potential, exportability of Indian manufacturing firms, services trade issues including accounting services and impact of euro adoption and EMU trade have been included. Tools like intra-industry trade indices, gravity model, panel data regressions etc. have been used to analyse various issues in these chapters. Trade databases like OECD TIVA and indices like STRI have been used to highlight IPN patterns and services trade barriers. The chapters are well structured and mostly involve trade issues in Asia in general and India in particular.
The second section starts with the chapter which investigates the impact of inward FDI on skill-unskilled wages and human capital formation in India. The author finds evidence that inward FDI has some positive impact on skilled human capital formation but no impact on wages. The only theoretical chapter in this volume deals with impact of SEZs on agricultural sector. Authors use a static general equilibrium framework to get their answers. They find that giving incentives to multinationals to relocate to SEZs may lead to simultaneous expansion of both the firms and agricultural sector but competitive real wages may go down but urban unemployment may reduce as well. The chapter dealing in foreign capital flows and manufacturing firm performance in India looks at the increase in investment opportunities and impact on financial performance variables. Surprisingly though both debt and equity flows impact investment positively they do not have any impact on performance variables for Indian manufacturing firms. The vulnerability of least developed countries to external shocks is an important area of research. The chapter on Maghreb countries deals with this topic and looks at the impact of external shocks on their economies. The authors use a VAR model to test these relationships. They find that these economies are susceptible to external shocks which negatively impact their economy and prevent higher economic integration among them. The authors, however, feel more economic integration among this group of countries would reduce their vulnerability to external shocks. The final chapter in this section concentrates on inward FDI in emerging markets and their determinants. FDI into these economies are found to be more responsive to long-run growth dynamics than to short-run fluctuations in major macroeconomic variables. Sectoral analysis of inward FDI flows shows that the study of aggregate FDI inflows may hide sector-specific factors. For example, service sector FDI is more influenced by institutional and governance related factors than natural or physical factors whereas these factors play a major role in manufacturing sector FDI.
The third section majorly deals in environmental issues and trade. The section commences with a review of literature on environmental policy instruments for international trade. Impact of stricter environmental policies on trade and impact of more liberalized trade on environment have been discussed. A detailed literature review on environmental policy measures for international trade has been attempted in this short chapter. An interesting chapter on carbon-based border tax and trade tries to estimate the impact through an input–output approach. The authors estimate the energy intensity of exported products and then through export elasticity finds the reduction in trade due to border tax adjustments in different scenarios. Specifically, they have considered India’s exports to Germany and France. Calculations predict large decline in export of products like agriculture and animal husbandry, glass and ceramics, iron and steel and fertilisers to Germany and cement to France due to border tax adjustments. Authors question the efficacy of such adjustments and term them as discriminatory without serving any purpose. The final chapter in this section is concerned with the impact of scale, composition and technique effect on per capita CO2 emissions across 130 countries between the years 1980 to 2009. The results are on expected lines. Per capita emissions are impacted by scale and composition effects in developing countries and technique effect in developed countries. Thus an urgent need to commit to more environmentally friendly production structure is the need of the hour. The authors conclude by reiterating the importance of adherence to multilateral environmental agreements in reducing emissions.
The last section of the book deals in institutions and policy issues in international trade. The first chapter looks at unfair provisions of the agreement on agriculture for the developing countries. The author shows that the developing countries are unable to take advantage of direct food aid to their people due to lack of funds. On the other hand, post-Bali ministerial it would be difficult for the developing countries to implement food security policy without violating the de minimis provision given the narrowing gap between Minimum Support Price (MSP) and Effective Rate of Protection (ERP). Non-tariff barriers are becoming increasingly important given that the level of tariffs are coming down to WTO and/RTA (Regional Trade Agreement) levels. The chapter on handling Non-Tariff Barriers (NTBs) in RTAs looks at this issue closely for Asian countries. The major conclusions are not new. The author calls for harmonization of standards across countries and more importantly for regional groupings which are part of same supply chains. Small Pacific countries having historical linkages with Australia and New Zealand have large trade with these economies. In the final chapter of the section, the authors consider the likelihood of Pacific economies forging formal trade agreements beyond these countries with Asian counterparts. Given the distance, even though logistics costs have somewhat come down, to realize the full potential formal trade agreements between these small Pacific countries and major Asian countries (with whom trade has expanded lately) has been suggested.
The volume ends with an excellent chapter on editors’ conclusion and way forward. The volume has included selected articles from the International Conference held at IIFT. The choice set is thus limited to the contributions of the participants. Nevertheless, the volume has been successful in picking up the papers which are of contemporary relevance and importance. The varied techniques used in the various chapters in the volume and the content would be useful for researchers, policy makers, teachers and any person keenly following the developments in international trade. Some of the chapters though involve very preliminary analysis which may need further enquiry. Overall, it is a useful volume bearing the mark of excellent editing.